Last week, Site Selection magazine ranked Michigan second
among the states for the most new and expanded facilities in the country. The
Michigan Economic Development Corporation — the state’s chief "jobs" department
— quickly took the opportunity to publicize this year’s rank in a
March 3 press release and in its "This
Week @ MEDC" e-mail. Don Jakeway, president and CEO of the MEDC, yesterday
told a state House committee that Site Selection magazine was "the Bible" among
economic development officials.

But as good as second place in "the Bible" sounds, there
are reasons to hesitate before declaring a victory for the state’s economy.

Site Selection magazine is a site-development, location and
relocation periodical for real estate professionals and managers associated with
site location decisions. One of its most prominent features is the annual "Governor’s Cup" award, given to the state with the highest number of new or expanded
facilities in Site Selection’s database.

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Michigan has won Site Selection’s Governor’s Cup five times
since 1997. After last Thursday’s announcement that Michigan had placed second
in the 2004 race, the MEDC’s press release quoted Gov. Jennifer Granholm saying
that it "speaks directly to the effectiveness of our strategy for attracting new
business and new jobs to the state."

This claim, however, should include some qualifications.
Site Selection magazine, to its credit, does engage in some independent
research, such as searching for new facilities and expansions using newspaper
clippings and the online search tool Lexis Nexis, and it also works to confirm
that new facility data sent from states qualify for entry in their database. But
the magazine’s rankings are still "a function of what states report to us,"[1]
as Site Selection Editor Mark Arend told me in January.

Because the magazine does rely in part on state reporting,
motivation to gather data (or to win the award) may well affect a state’s
rankings. If Kansas or Hawaii doesn’t dedicate staff to collecting and
forwarding new-facility and facility-expansion data, its chances of winning the
Governor’s Cup may fall.

Inversely, states that devote more resources to economic
development functions are probably more focused on gathering data that help them
win the award. In Michigan, according to a 2002 Detroit News article by James
Higgins about the Governor’s Cup, "(MEDC) agents around the state are always on
the lookout for new factory or office construction, much of which doesn’t report to the MEDC."[2]

Hence, even if the MEDC isn’t responsible for the new
facility or expansion, its staff works hard to ensure the growth gets counted.
By doing so, state officials probably increase the chances of winning the Cup,
an award that has become very important to the MEDC. Higgins reports: "The
Governor’s Cup has been the centerpiece of Michigan’s economic development pitch
for four years. Millions are spent to advertise the award, and considerable more
resources are invested by MEDC in preparing for the annual magazine contest."[3]
In at least one year,
several MEDC bonuses paid to high-ranking staff relied in part on Site
Selection rankings.

It’s also worth remembering that Site Selection rankings
provide only a limited picture of a state’s economy. Consider a study released
in January by United Van Lines. The company’s residential moving figures showed
Michigan to be a "high outbound" state — that is, one of only 11 states in the
continental United States in 2004 where "55 percent or more of moves (were)
coming out of a state."

Of course, United’s figures have limitations of their own,
but the company’s executive vice president has noted that United’s study
"has been shown to accurately reflect the general migration patterns in various
regions of the country" and that the data have been used by "real estate firms,
financial institutions and other observers of relocation trends." Ultimately, it
is probably not a good sign that last year, according to the study, Michigan
"reached its highest outbound level since 1982" — 60.9 percent.

Nor do Michigan’s broader economic statistics reinforce
Michigan’s repeatedly high rankings in Site Selection magazine since 1997.
According to federal figures, from December 1995[4]
to December 2004, Michigan has ranked 50th among the states in percentage
employment growth. From 1993 to 1997, Michigan’s percentage increase in
per-capita gross state product was 18th in the United States, but from 1998 to
2003, it was 44th.

And in 2004, Michigan was
one of only two states on net to lose jobs, and it was the only one to lose
a significant number (46,500). Ironically, the other state to fade was Ohio,
which lost 200 jobs after placing first in the 2003 Site Selection rankings.
Thus, Ohio finds itself in the same position as Michigan in 2000, when the
then-president and CEO of the MEDC commented about winning the 1999 Governor’s
Cup: "The award is a great reminder of how far we’ve come. We’ve hit elite
status among states. It is proof positive that Michigan’s stable economy isn’t a
fluke."
Michigan then entered a period of sustained economic weakness.

It’s probably not time to break out the bubbly on
Michigan’s economic performance. After lagging well behind the surging national
economy for several years, the state may begin to recover in coming months — but
Site Selection magazine probably doesn’t tell us much either way.

#####

Michael D. LaFaive is director of fiscal policy for the
Mackinac Center for Public Policy, a research and educational institute
headquartered in Midland, Mich. Permission to reprint in whole or in part is
hereby granted, provided that the author and the Center are properly cited.

[4]
Michigan accelerated its "economic development" measures in 1995, the year
the Michigan Economic Growth Authority was created and the Michigan Jobs
Commission (now the MEDC) was elevated to "department" status.